A consortium led by KKR has purchased an office tower in Seoul for a reported KRW 500 billion ($420 million), marking the US private equity giant’s fourth property investment in South Korea.
KKR said in a statement announcing the acquisition that it had teamed up with Seoul-based fund manager IGIS Management and local developer SK D&D to acquire the 23-storey Namsan Square and would boost the 42 year old property’s value through a refurbishment programme.
The KKR-led consortium acquired the 75,000 square metre (807,293 square foot) asset from a real estate investment trust managed by the National Pension Service as institutional investors continue to pile into the Seoul office market.
Fund managers, insurers and other investors spent KRW 11.5 trillion on office property in the Korean capital during 2019, according to real estate consultancy Savills – nearly matching the record-breaking KRW 11.6 trillion recorded in 2018.
Targeting Core Markets
“South Korea holds terrific potential for real estate investment, and the market is a core part of KKR’s regional real estate strategy,” said KKR’s Asia real estate director, David Cheong, who added that Namsan Square was “particularly compelling as one of Seoul’s pre-eminent commercial buildings”.
At the reported transaction price, the KKR-led consortium paid KRW 6,667 per square metre for the property officially known as the Kukdong Building, with face rents in the 42-year-old asset reported to average KRW 27,830 per square metre per month.
Located on the boundary of Seoul’s central business district, the property is currently 85.5 percent occupied by tenants representing multinationals, local corporates and government agencies. The NPS fund had purchased the asset from Sydney-based Macquarie for KRW 310 billion in 2009.
Renovating an Aging Office Block
With Namsan Square having been completed in 1978, KKR said that its immediate plan is to upgrade the building’s facade, restrooms and the retail arcade.
These efforts to push up the rental values in the property are long overdue, according to industry experts.
Cushman and Wakefield’s head of corporate solutions in Korea, Johnathan Noone, noted that the normal interval for redevelopment or extensive refurbishment in Seoul is 30 years after construction.
Divesting Seoul Assets
The acquisition of Namsan Square comes a month after a KKR-led consortium sold the BLK Pyeongtaek Logistics Center in Korea’s Gyeonggi province to local institutional investors represented by Seoul-based Pebblestone Asset Management for an undisclosed sum.
In KKR’s largest Seoul deal, executed two years ago, the firm sold the K-Twin Towers to Samsung SRA for around KRW 713 billion – the highest price ever paid for an office in the South Korean capital at the time.
Lining Up for a Bit of Seoul
Namsan Square is the latest in a wave of foreign acquisitions in the South Korean capital, with major overseas players snatching up assets across the office, logistics and hospitality sectors.
Just under two months ago, Hong Kong-based private equity firm PAG teamed up with Seoul-based Inmark Asset Management to acquire the Grand Hyatt Seoul hotel for around KRW 560 billion.
Three weeks before the deal for the landmark hotel, M&G Real Estate acquired the 100,000 square metre Yongin Baegam Logistics Centre near the South Korean capital for $131 million.
Seoul offices were also the target in April last year when Singaporean private equity firm Keppel Capital purchased a set of three buildings in the city for a combined KRW 430 billion.